Expense to raise floor height of warehouse during monsoon is revenue exp.: HC

Case Details: Jetha Properties (P.) Ltd. v. CIT - [2022] 136 taxmann.com 384 (Bombay)

Judiciary and Counsel Details

• • K.R. Shriram & Amit B. Borkar, JJ.
  • Ms. Dinkle Hariya, Vipul Joshi, Ms. Namrata Kasale and Ms. Priyanshi Desai for the Appellant. 
  • Suresh Kumar for the Respondent.

Facts of the Case

The assessee was a warehouse keeper. Its warehouse was the situation in an area that was prone to severe waterlogging during monsoons. Whenever water logging happened, it would damage the goods stored in the warehouse.

One of the biggest customers of the assessee was Bombay Dyeing Manufacturing Company Limited. It has been storing its goods in the warehouse of the assessee for the past three or four years and was occupying nearly 90% of the total space available in the warehouse. Due to flooding, the customer’s goods got damaged on a few occasions. The customer cautioned the assessee that if any remedial measures were not taken, the customer would have to change its business arrangement with the assessee.

The assessee raised the floor height by about 18 inches to avoid water logging in the monsoon. Assessee incurred cost of Rs. 10,70,000 and claimed the same as revenue expenditure, and revenue contended that such expenditure would be capital in nature. The matter reached before the High Court.

High Court Held

The Bombay High Court held that the assessee incurred the expenditure wholly and solely to ensure that the existing business with the customer, which was offering attractive returns to the assessee, was continued uninterrupted.

The expenditure incurred by the assessee had a direct relation to the business with the customer because the assessee also received corresponding increased compensation from the customer. The assessee had raised the ware-housing charges after increasing the floor height to preserve customers’ goods.

Case Review

• • Ballimal Naval Kishore v. CIT [1997] 90 Taxman 402/224 ITR 414 (SC);
  • Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34 (SC);
  • CIT v. Ciba of India [1968] 69 ITR 692 (SC);
  • Bombay Steam Navigation Co. (1953) (P.) Ltd. v. CIT [1965] 56 ITR 52 (SC);
  • CIT v. Vallabh Glass Works Ltd. [1982] 8 Taxman 132/137 ITR 389 (Guj.) and
  • Dalmia Jain & Co. Ltd. v. CIT [1971] 81 ITR 754 (SC) (para 10) followed.

List of Cases Referred to

• • Ballimal Naval Kishore v. CIT [1997] 90 Taxman 402/224 ITR 414 (SC) (para 8)
  • Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34 (SC) (para 8)
  • CIT v. Ciba of India [1968] 69 ITR 692 (SC) (para 9)
  • Bombay Steam Navigation Co. (1953) (P.) Ltd. v. CIT [1965] 56 ITR 52 (SC) (para 9)
  • CIT v. Shri Vallabh Glass Works Ltd. [1982] 8 Taxman 132/137 ITR 389 (Guj.) (para 9)
  • Dalmia Jain & Co. Ltd. v. CIT [1971] 81 ITR 754 (SC) (para 9).